Thinking Mathematically (6th Edition)

Published by Pearson
ISBN 10: 0321867327
ISBN 13: 978-0-32186-732-2

Chapter 8 - Personal Finance - 8.2 Income Tax - Exercise Set 8.2 - Page 507: 42

Answer

The statement, “A college student ‘X’ can choose a $4,000 deduction or a $2,500 credit to offset tuition and fees. ‘X’ will pay less federal taxes by selecting the $4,000 deduction” does not make sense.

Work Step by Step

Deductions are deducted from the adjusted gross income, then the taxable income is calculated on the basis of percentage of standard limit. So, \$4,000 deductions will be deducted from the adjusted gross income, whereas, \$2,500 will be credited from the income tax that will make more difference than deducting the deduction from the adjusted gross income. Hence, the statement, “A college student ‘X’ can choose a \$4,000 deduction or a \$2,500 credit to offset tuition and fees. ‘X’ will pay less federal taxes by selecting the $4,000 deduction” does not make sense.
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